Resale price maintenance and manufacturer competition for retail services


Hunold, Matthias ; Muthers, Johannes


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URL: https://ub-madoc.bib.uni-mannheim.de/32245
URN: urn:nbn:de:bsz:180-madoc-322458
Document Type: Working paper
Year of publication: 2012
The title of a journal, publication series: ZEW Discussion Papers
Volume: 12-028
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: D83 , L42,
Keywords (English): Biased sales advice , common agency , manufacturer dilemma , matching , retail service , RPM , vertical restraints
Abstract: We investigate the incentives of manufacturers to use resale price maintenance (RPM) when selling products through common retailers. In our model retailers provide product specific pre-sales services. If the competitive retail margins are low, each manufacturer fixes a minimum price to induce favorable retail services. With symmetric manufacturers, products are equally profitable in equilibrium and no product is favored as without RPM, but retail prices are higher. We show that minimum RPM can create a prisoner’s dilemma for manufacturers without increasing, and possibly even decreasing the overall service quality. This challenges the service argument as an efficiency defense for RPM.

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